Regulatory Reform

Regulation is the "hidden tax" that governments impose on families and private firms. While state and local governments clearly have an interest in developing sensible regulation, regulations often are developed without examining their costs and their impact on all regulated entities.

Regulatory Burden

Although state agencies certainly develop burdensome regulations, the state legislature is more responsible for creating the massive regulatory burden hurting North Carolinians.

In a 2005 JLF survey of more than 600 North Carolina business leaders, they ranked the regulatory burden as the second most important factor reducing the state's economic competitiveness (the tax burden was ranked No.1). About 81 percent said that the cost of most government regulations exceeded their benefits. Those results are consistent with JLF's 2004 survey in which regulatory burden also was ranked second. In 2002, regulatory burden was ranked fourth, however — indicating that the problem is only getting worse.

A great example of North Carolina's disregard for any type of cost-benefit analysis is the so-called Clean Smokestacks bill enacted in 2002. Designed to impose strict regulations on coal-fired power plants, the bill passed even though its benefits will be limited or nonexistent.

Air quality in North Carolina has generally been improving for decades, and violations of even the tighter federal standards on ground-level ozone have also been declining. The new state regulations will not appreciably affect human health, but they will further inhibit the state's economic growth.

N.C. Regulation Restrains Competition

Regulation is supposed to promote competition and protect the interests of consumers. In North Carolina, as in other states, however, some regulation exists to reduce competition and, in effect, raise prices for consumers. Here are two examples:

Certificate-of-Need Laws. State law mandates that health care providers must obtain a certificate of need to do such simple things as replace outdated equipment. A hospital must get permission from a government agency to add even a single bed to its facility. Absent government approval, new hospitals cannot be built, and existing hospitals cannot expand to meet the needs of local citizens.

Occupational Licensing. North Carolina requires licenses for numerous occupations, such as barbers, landscape architects, and acupuncturists. But state licensing is frequently unnecessary, and a less restrictive approach — such as a private and optional certification system — would be more appropriate. An optional system would give consumers the choice between certified professionals and others who decided, for whatever reason, not to seek certification.

Barber licensing is one example of an occupational law that should be eliminated. North Carolina's barber licensing law is so extreme that it requires almost anyone engaged in "barbering" to have a certificate. In North Carolina, if you give a friend, cousin, or anyone who isn't an immediate family member a facial for free, but you don’t have a barber's license, you are breaking the law.

Regulation's Impact on Small Business

According to the U.S. Small Business Administration (SBA), "More than 92 percent of businesses in every state are small businesses, which bear a disproportionate share of regulatory costs and burdens." Small businesses have different resources and compliance capabilities than larger businesses.

For this reason, the SBA has been encouraging states to adopt "regulatory flexibility acts": statutes that require agencies, when developing regulations, to take into consideration the unique factors that small businesses will face when trying to comply with them. Unfortunately, North Carolina does not have a small business regulatory flexibility act.

As part of its model legislative language, the SBA identifies five factors any state should consider in its small business regulatory flexibility analysis in order to reduce the impact of the proposed regulation on small businesses:

1. Establish less stringent compliance or reporting requirements for small businesses.

2. Establish less stringent schedules or deadlines for compliance or reporting requirements for small businesses.

3. Consolidate or simplify compliance or reporting requirements for small businesses.

4. Establish performance standards for small businesses to replace design or operational standards required in the proposed regulation.

5. Exempt small businesses from all or any part of the requirements contained in the proposed regulation.

How Much Regulation Does N.C. Have?

One measurement of regulatory growth is the number of pages published in the North Carolina Register each year. The annual rate roughly doubled between 1987 and 2007 (see chart, "Measuring the Trend in State Regulatory Activity").

In 1995, the North Carolina General Assembly began to address the state's role in regulatory overkill by enacting a bill that gives the Rules Review Commission the power to review proposed regulations before they became law. But before the law became effective Dec. 1, 1995, some 24 state departments and boards filed more than 2,250 proposed rule changes to beat the deadline. This breathtaking exhibition of the cavalier attitude state bureaucrats have toward regulatory reform is but one more reason lawmakers should take more extensive action to reform state rulemaking and enforcement agencies.

The 1995 reforms certainly helped, but the numbers still are about double what they were in 1987. The agencies remain a major source of regulatory overkill, but as mentioned previously, the legislature is the primary source of excessive regulation.

Recommendations

1. Eliminate regulations other than those necessary for promoting public health and safety and combating fraud in markets such as financial services. Where possible, employ compliance mechanisms other than fines, such as consultations with private firms and educational programs for professionals. Sunset all new state rules after two years to allow an assessment of their real-life costs and benefits.

2. Review existing regulations and eliminate redundant, outdated, and unnecessary regulations.

3. Repeal laws that create government restraints of trade, such as the certificate-of-need laws and unreasonable occupational licensing laws. Regulations should help promote competition, not restrict it.

4. The legislature should do its own cost/benefit analysis on proposed legislation that would have even a modest economic impact on North Carolinians. This analysis could be similar to the fiscal notes developed by the fiscal research staff.